Xyleco: The Next Bio-Based Scam Looking to Cash in on the Sustainability Craze

Gihan Hewage, Analyst

While Xyleco has been on Lux's radar for a few years due to its immense patent portfolio (see below), there was little evidence of commercialization until it recently came into the spotlight. Thanks to a "60 Minutes" feature filled with unsubstantiated claims that aired this past January, Xyleco has once again caught our attention. Although its website had absolutely no worthwhile information as recently as February 2018 and had previously detailed a cellulose fiber product (capture from 2005), it currently features its electron beam biomass pretreatment technology, a host of potential sugar-derived products, and the bold claim that Xyleco is "leading the sustainable industrial revolution." However, in spite of these claims and the hype following the "60 Minutes" feature,Lux views Xyleco with a great deal of skepticism and as a likely scam.

Throughout the feature, founder Marshall Medoff emphasizes that scientists have thus far been unable to derive sugars from biomass, which is factually inaccurate. While true in the materials and chemicals space, commercial-scale production has been occurring for years in fuels, and Xyleco's electron beam pretreatment would not circumvent many of the challenges with handling the biomass that have troubled developers. Additionally, it is not evident that Xyleco has a financially viable process, as its patentsdescribe the electron beam as having a "relatively high total beam power." Although the described pretreatment technology would be unique, Xyleco's patents list numerous commercially available enzymes, suggesting that its emphasis on downstream product development is not as novel as it claims. For example, the "bioplastic" Medoff claimed to have invented on "60 Minutes" was shown to be PLA. When "60 Minutes" described plans for Xyleco's commercial facility to be operational over the next few months, we viewed that with skepticism, primarily because of frequent delays in the bio-based space. However, the city of Moses Lake, Washington, has had to place "Do Not Occupy" signs on the facility, as Xyleco has not been cooperative, while Community Development Director Gil Alvarado described the description of the plant on "60 Minutes" as "inaccurate." If Xyleco is a legitimate company, then its path to commercialization is not as straightforward as it claims.

All things considered, there are numerous reasons to believe that Xyleco is an illegitimate company. While Medoff highlighted Xyleco's impressive patent portfolio, more than 3,000 patents is an unbelievably large number for a startup, and the subsequent expenses likely used the majority of the company's unverifiable and questionable funding. Medoff claims to have invented the technology with no scientific background. Instead, he appears to have a law background and is linked to a decades-old scandal involving the Boston Marathon. Moreover, although "60 Minutes" touts the impressive board of Xyleco, filled with esteemed scientists, businessmen, and politicians, they have no real connection to Xyleco's technology. While Robert Armstrong and Steven Chu have a strong (although unrelated) scientific background, George Schultz and William Perry were both on the board of famed startup fraud Theranos. Although the connection does not guarantee that Xyleco is illegitimate, we would have more confidence in the company if the board had a stronger connection to Xyleco's core technology.

If Xyleco is a legitimate company, we have not been given any reason to believe it has any advantage over any existing biomass-to-sugar developer. However, given its incorrect claims regarding the bioeconomy, exorbitantly expensive patent portfolio, unclear technology development history, and esteemed yet unrelated board, Lux believes that Xyleco is likely a scam.

While Xyleco has been on Lux's radar for a few years due to its immense patent portfolio (see below), there was little evidence of commercialization until it recently came into the spotlight.